Markkula Center of Applied Ethics

Ethics and Public Contracting

by Judy Nadler

Public contracting is big business, involving billions in taxpayer dollars and impacting everything from local street resurfacing to the rebuilding of Iraq.

While stringent regulations require governments to make awards to the lowest responsible bidder, several recent changes in the public contracting process raise questions about whether the public interest is really being served.

The first is the greater involvement of lobbyists in the actual writing of contracts. How close should the relationship be between consultants-turned-lobbyists and decision makers?

Particularly in cases where a high degree of technical expertise is needed, it may make sense to hire consultants, but governments must draw the line between those who provide information and recommendations, and those who lobby on behalf of a specific bidder. Local bodies must look outside the circle of potential bidders to secure the needed expertise to request and evaluate bids.

The effective use of lobbyists can be a great benefit to our system, helping city councils and government officials become more educated about the projects at hand. But while lobbyists are legitimately representing the views of those who hire them, who will advocate on behalf of the constituents? Another area of ethical concern is the move by many local governments toward design-build models of public contracting. Unlike the traditional model, where design, bid, and construction are separate items, in design-bid, the design and construction components are packaged into a single contract, and that contract is not necessarily awarded to the low bidder.

Voters in San Jose, Calif., adopted this system in approving Measure D. The measure allows the city to choose a single firm for both the design and construction of a project costing more than $5 million, when the city determines this method would save time or money. City officials will no longer be forced to award to the lowest bidder, but can consider other factors, including the quality of design or the construction materials or the experience of the contractor.

While it may be argued that this change, also adopted by half a dozen other California counties and cities, may further the government's goal of using efficient processes, does it compromise fair competition? Are we willing to exchange the value of fair competition in public contracting for efficiency? Are there any safeguards for design-bid contracts to ensure fair competition?

These new threats to the integrity of public contracting compound an age-old problem, the influence of political contributions on who receives awards, or the so called "pay to play" system.

Vice President Spiro T. Agnew came under investigation for allegedly receiving payoffs from engineers seeking contracts when he was Baltimore county executive and during his tenure as governor of Maryland. He was also accused of taking kickbacks in the White House, leading to his resignation.

More recently, outgoing New Jersey Governor James McGreevey, stung by similar charges, issued an executive order banning campaign contributions for state and county office from any company that does business with the state.

Certainly, an order like McGreevey's would serve the goal stated in the California State Contracting Code: to keep contracts from being steered to businesses or individuals because of political connections, friendship, favoritism, corruption, or other factors.

But whether or not we adopt this approach, we must address the problem. A fair system of public contracting is not just about efficiency or cost savings. It's about public trust.

Questions surrounding ethical practices discourage qualified companies from entering the bidding process.

They also undermine the public's confidence in the process, the finished product, and ultimately the government institutions themselves.

Judy Nadler is senior fellow in government ethics at the Markkula Center for Applied Ethics. Formerly, she was the mayor of Santa Clara, Calif. She has addressed this and other topics in government ethics for the U.S. Conference of Mayors, the Council on Governmental Ethics Laws, the League of California Cities, and other good government groups.

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